Wednesday, May 28, 2014

NY Times Stories on Climate Change Adaptation

When I was a kid we used to spend August on Fire Island along the Atlantic Ocean. We were told that the current beach front had been the middle of the island just a century before. In the aftermath of Hurricane Sandy, investments are being made to fortify the sand dunes to protect against future flooding. Who should pay for such place based investments? In my Climatopolis work, I argue that local property owners should pay. The New York Times reports today that I (and all other national tax payers) are contributing to their protection. This is wrong on at least two levels. It creates spatial moral hazard as it subsidizes living in risky areas and encourages greater private investment (i.e new homes) in such increasingly risky areas. As these new investors plant new roots in such areas, they represent "human shields" and give place based politicians greater bargaining power to lobby for even more pork to flow to such risky areas.

The Chicago approach to risk taking is simple. If you value living in a beautiful and risky place, you are a grownup and you should bear the full costs of investing in such a place. If you expect other people's money to help build protection for you and to ex-post (i.e after the disaster) to bail you out, then we are treating you like a child. Such benevolent paternalism will eventually cost all of us. Instead, we should incentivize moving to higher ground and allow the "adult" risk lovers to use their own funds to live in risky areas.

Switching subjects, there is an Opinion piece in the NY Times making the "old cliche" point that in the past that there has been a correlation between violence and climate change. You read Eric Cline's piece and tell me if you learn anything. This is warmed over Jared Diamond Collapse stuff. This time "is different". Dr. Cline misses the point that unlike in the past that we now live in a globalized world economy featuring instant information sharing and free markets. These institutions, that did not exist 3000 years ago, mean that the distant past experience is meaningless for making predictions about climate change impacts for today. The NY Times needs to talk to some economists about how self interested and forward looking households, firms and local governments anticipate and make investments to prepare for the new normal. As I will argue in Turkey in a few weeks, urbanization and the system of cities will play a key role in allowing us to adapt to many of the challenges that climate change will pose.